Ever wondered why CEO of Goldman Sachs hasn’t been fired yet?
Realizing the pressure of a recent shareholder resolution, Goldman Sachs was able to get the largest public employee and health care workers’ union in the country, AFSCME, to pull their proposal regarding Lloyd Blankfein’s role as both CEO and chairman of the board. Originally, the proposal was to be voted on in the upcoming May shareholder meeting and had the potential to garner a majority vote hence kicking Blankfein out of this dual role. AFSCME was concerned about the conflict of interest inherent in having one person essentially managing himself. In exchange for pulling the proposal, Goldman agreed to change its board structure and appoint a “lead director” to its board.
Coincidentally, this action taken by Goldman comes less than a month after disgruntled employee Greg Smith wrote the New York Times Op-ed Why I am Leaving Goldman Sachs. In this sultry piece Smith describes the dilapidated culture at the investment bank referring to clients as “muppets” and has now many large investors questioning the ethics at the 143 year old firm.
President of AFSCME, Gerald W. McEntee, released a statement on their agreement with Goldman stating:
“Wall Street greed and conflicts of interest drove our economy into a ditch. This move is a step in the right direction to make sure Wall Street CEOs are held accountable to their shareholders and that taxpayers are not on the hook for their risky bets. AFSCME members participate in state and local government pension plans that are clients of Goldman Sachs. As clients we’re concerned that the practices of Goldman are not in the best interest of the clients they serve. The appointment of a lead director will provide a much needed and vital check on the company’s practices and conflicts of interest.”
Though Blankfein will remain in the dual role capacity as both CEO and Chairman, this newly appointed lead director’s roles include challenging executives about risks along with running the boards’ executive sessions. If this actually gets done remains to be seen. Approximately 250 companies of the S&P 500 have a lead director in place, up from 165 in 2006.
One shareholder resolution that remains on the 2012 ballot is through my company, Napa-based investment firm, Harrington Investments Inc., which urges the Board of Directors to adopt a policy stating that upon contract renewal or in future contracts, executives will be required to retain 75% of the shares acquired through the Company’s compensation plans, excluding tax-deferred retirement plans, for at least 3 years from the termination of their employment. Of course, this proposal will remain on the ballot unless Goldman bows to the requests of the resolution.